How FOMO and FONGO can ruin your investment strategy

F.O.M.O and F.O.N.G.O – two little acronyms that can have a big impact on your money-related decisions. Whether you’re getting into the stock market, investing in cryptocurrency, throwing cash behind a start-up or buying/selling property, fear can play a big part in your decision-making process.

Fear is something that can really hold you back BUT a little fear can also keep you on your toes and alert you to potential dangers that you should steer clear of. Let’s take a look at the two main types of fear that can affect your money and how you can harness them for good (and when you should stick them at the back of your sock drawer).

F.O.M.O (Fear of Missing Out)

We’ve all been there – feeling that sense of panic that you’re about to miss an opportunity that other people seem to be taking advantage of. This can happen whether you’re standing at an auction, reading about crypto or watching bounces and dips in the share market. Your senses are heightened, which is good because it may be an opportunity you can jump on –the problem is, a lot of emotion can overlay your decisions in this sort of situation and that can cloud your judgment.

There is nothing wrong with taking a risk – risk often comes with reward – but you need to know your tolerance for it and know how you should respond when your emotions test your resolve. Every investor needs to know their budget, how much risk they’re comfortable with and how that affects the decisions they make. Every investor also needs a strategy and to be clear on their goals – are you in it for the long term or the short term? Is this money you can afford to lose or are these essential savings?

Nobody wants to buy at the top of the market or sell as something’s bottoming out –having a strategy and understanding longer-term trends can help avoid this, rather than following emotional impulses and getting caught up in the herd mentality. Don’t feel compelled to follow others when it comes to your money – if you have a plan (and you should) then stick to it.

F.O.N.G.O (Fear of Not Getting Out)

This type of fear is ultimately related to fearing loss and feeling trapped in a money situation that you won’t be able to get out of. When markets get the jitters, it often doesn’t take much – a few panicked investors and a newspaper article or two – for fear to spread like wildfire.

Again, it really comes back to your situation and your goals and that’s what you need to remind yourself. Put the panic aside, and assess what’s happening with logic and strategy. Cutting your losses is not necessarily a bad thing if that’s what suits your current needs.

However, if time permits, often the best thing you can do is take the pressure off and hold on until the inevitable recovery. Market cycles are just part of the money world and making hasty decisions is not usually a good idea, especially when you consider that markets go up three out of every four years. It’s better to focus on your longer-term plan and try to ignore the short-term gains and losses going on in the markets around you.

Sure, fear of getting stuck in an unfavourable investment makes sense – but should you not also fear the regret and loss that comes with making a rash decision? That’s why the best thing you can do is take fear out of the equation.

So remember, if fear strikes:

• Keep your eyes on your own goals and your longer-term strategy.
• Acknowledge it and use it as an opportunity to review your investment using logic and reason and make sure you’re still doing the best thing for your situation.
• Remember the market moves in cycles – it always has and always will. Depending on the asset class, those cycles can be months or years (or even hours if you’re watching the crypto market!). Know that if you’re feeling the pressure of time and can’t make a comfortable, fear-free decision, then you’re probably better off not making any moves and riding the next wave of the cycle.
• Make sure you’re diversified. Putting your investment eggs into different baskets is a smart way to spread risk (higher or lower) to suit your own situation and will help you ride market cycles with more confidence.

By Pat Garrett

Pat is the CEO and co-founder of robo-advisor Six Park, which uses technology to lower costs and allow people to invest more easily than was previously possible. Six Park was founded in 2014 with the goal of disrupting the Australian financial services industry. Six Park’s Investment Advisory Committee is made up of Six Park co-founder Brian Watson, formal Federal Finance Minister Lindsay Tanner and the founding General Manager of Australia’s Future Fund, Paul Costello. This advisory committee is active in overseeing Six Park’s investment strategy.